Welfare
• “Relief” programs to help the poor began in the 1930s during the Great Depression.
What is Poverty?
• Is it an absolute concept that is the same across the world or is it a relative concept that depends on the incomes of others in the area?
• Can we say an American is poor if they have a living standard that is higher than the average person in the rest or the world?
Measuring Poverty
• Poverty Line: that level of income sufficient to provide a family with a minimally adequate standard of living
– The poverty line was originally established in the 1960s.
– Surveys indicated that poor families of four spent an average of one-third of their income on food.
– A survey established the cost of a minimally adequate diet and that figure was multiplied by 3 to get the poverty line.
– Similar surveys established the poverty line for other family sizes.
Poverty Lines - 2011
• Family of
– 4 the poverty line is $22,350
– 3 the poverty line is $18,530
– 2 the poverty line is $14,710
– 1 the poverty line is $10,890
Who’s Poor
• Those under the poverty line are disproportionately
– Women
• A poverty rate 3 points higher than that of men
– Children
• a poverty rate twice that of adults
– Minorities
• a poverty rate 3 times higher than that or whites
– High School Dropouts
Problems with our Measure of Poverty
• Concerns that suggest the poverty rate is overstated
– Americans under the poverty line consume more protein, have more living space, are more likely to have air conditioning than the average European.
– Updates are based on the CPI which has consistently overstated the increase in the cost of living.
– The measure only counts income and not wealth. There are nearly a million “poor” who own homes worth more than $150,000.
– The measure only counts cash income and does not count the non-cash amounts people get from programs such as food stamps and Medicaid.
• Concerns that suggest the poverty rate is overstated for some and understated for others
– The measure treats as equal the incomes of residents of high cost cities and low costs towns. This overstates rural poverty and understates urban poverty.
– The measure uses the overall CPI, which includes goods the poor cannot afford. In some years, the prices of goods bought by the poor rise more than the CPI and in other years it rises less.
Programs for the Poor (Cash)
• Temporary Aid to Needy Families
– A program that gives money to states for them to work with the poor. If there is a “welfare check,” this is the program that grants it.
• Supplemental Security Income
– A program that gives money to widows, orphans and the disabled.
• Earned Income Tax Credit
Programs for the Poor (In-Kind)
• In-Kind transfers : provisions of goods and services in forms other than cash
– Women, Infants and Children (WIC): vouchers allow people to get basic food products for pregnant women, new mothers and their children.
– Food Stamps: vouchers that enhance the recipients ability to buy food
– Medicaid: free health insurance
– Section 8 or Housing Authority housing: subsidized housing.
– Head Start: subsidized day care and preschool
Why Spend $340 Billion on a $62 Billion Problem?
• Total Costs of the programs $340 billion – Cash programs $90 billion
– In-Kind programs $250 billion
• Cash transfers would cost the government less to administer.
• Much of the benefit of the Medicaid goes to children in households just above the poverty line.
• Giving cash does not serve the goals of those helping the poor because Americans generally
– believe the poor would waste the money.
– believe the poor would not spend the money on their children. – feel better giving people what they need rather that what they like.
Myths, Incentives and Disincentives
• Fact: Having a child can make someone who is ineligible for a welfare program eligible for that program.
• Fact: Having an additional child increases the amount of aid recipients are eligible for.
• Myth: People have (more) children to get (more) welfare.
Welfare Reform
• An optimal a welfare program would
– be sufficiently funded to solve the problem of poverty – provide an incentive to leave the program
– be politically sustainable by not putting an excessive burden on taxpayers.
• The three can not be simultaneously met in the U.S. and the second has typically been the aspect sacrificed.
– Prior to 1996 reform a person who worked part-time would have most of the benefit of working taken away because their benefits would be reduced.
